This massive drop had taken me by surprise as I never believed that oil prices would go below the lows it set in 2013. Increased production in the U.S. shale plays combined with a dropping stock market and panic over Ebola have contributed to a market that no longer adheres to fundamental reasoning.
In a market like this, it’s best to carefully craft a plan for investment and not be taken in by the volatility and rapid swings of stock and oil prices.
I told Brittany that I detected more than a little panic in the market action but also thought that there were long-term opportunities to be had, although care is needed in finding them.
With oil prices near $80 a barrel and the possibility they would stay low for an extended period of time, there are several companies we definitely do not want to be invested in right now. They include offshore drillers, whose costs for producing oil is generally well above those of the most efficient onshore shale producers.
With the large major oil companies like Exxon (XOM) - Get Report and Chevron (CVX) - Get Report under pressure to produce energy more cheaply, they will not commit capital into offshore projects. Companies like Transocean (RIG) - Get Report , Seadrill (SDRL) - Get Report and Diamond Offshore (DO) - Get Report remain at risk, despite huge down moves in their share prices already.
Well-capitalized shale oil producers, however, are fast becoming extremely good value here. While over-leveraged producers will be hard-pressed to maintain production levels, other well-run companies with hedged production and quality balance sheets should be able to weather several months of sub-$90 crude without incident, ultimately seeing much higher share prices than today. Two of these companies I suggest are Cimarex (XEC) - Get Report and Anadarko (APC) - Get Report .
I talk more about opportunities and pitfalls in the current oil market with Brittany in the video above.
At the time of publication, the author was long APC and XEC, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates ANADARKO PETROLEUM CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate ANADARKO PETROLEUM CORP (APC) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."
You can view the full analysis from the report here: APC Ratings Report
Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 25 years of oil trading experience. He is a licensed commodities trade adviser.
Dan is currently President of
a wealth management firm and is the author of
published in March of 2011 by John Wiley and Sons.
Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts on
US and UK and
Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.